ISLAMABAD: The government will charge one percent withholding tax on purchase of immovable property of all sizes, including plots, flats, houses, residential and commercial properties purchased at any time with effect from July 1, 2014. As per details, all sizes of immovable properties are covered under the withholding tax regime at the purchase stage through Finance Bill (2014). At the same time, there is no exemption from withholding tax on time period for purchase of immovable properties. The WHT will be collected at the time or registry or transfer of property. It is an adjustable tax and refund can be claimed on filing of income tax returns and wealth statements.
To document and bring into tax net the real estate transactions, it has been proposed that an adjustable advance tax be collected on purchase of immovable property at 1 percent tax rate for complaint taxpayers and 2 percent for non-compliant persons. However, properties less than Rs3 million value and schemes introduced by the government for expatriate Pakistanis will be excluded.
Earlier, to overcome the administrative problems being faced in collection of Capital Gain Tax on disposal of immovable property and keep a track of the transactions of immovable property adjustable advance withholding tax at 0.5 percent of the consideration received on sale/transfer of immovable property was levied on sellers/transferors of immovable property under section 236C of the Income Tax Ordinance, 2001.
Advance tax collected under section 236C was introduced for the purpose of providing a mechanism for collection of capital gain tax on disposal of immovable property. The actual quantum of capital gain and tax payable thereon is to be computed at the time of filing of income return. Section 236C is not an independent provision and does not operate in isolation. Since Capital Gain Tax has been imposed only on disposal of properties held for a period of up to two years therefore, advance tax is also to be collected from sellers who held the immovable properties for a period up to two years.
Prior to the 18th Constitutional Amendment Entry 50 of the Federal Legislative List contained in Part-I of the Fourth Schedule to the Constitution empowered the Federal Legislature to levy taxes on the capital value of the assets, not including taxes on capital gains on immovable property.